Determinants of Residential Electricity Consumption: A Comparison between Urban and Rural Households in Kandy District in Sri Lanka

This study attempts to identify the key determinants of residential demand for electricity in rural and urban households in Sri Lanka. Yearly data for 108 randomly selected households (54 from each - urban and rural) for a five years period were used for the estimation. Fixed effect model is used to determine the responsiveness of electricity consumption to its own price, differences in price, price of alternative fuel, income and variables relating to the social-economic characteristics of the household. Price elasticity and income elasticity for electricity in the urban households are estimated to be -0.38 and 0.15 while they are -0.04 and 0.14 for rural households, respectively, which confirm the previous findings, as the electricity is inelastic and a normal good. Furthermore, the estimated model demonstrates the importance of including the household level information for identifying the determinants of electricity demand, which is not possible using aggregate level data in a country.